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This presentation provides a progress report on the actions taken to address the issues raised in the 2010/11 audit report. It highlights the challenges faced and the strategies implemented to improve internal controls and financial management.
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Presentation of the Management Action Plan on the 2010/11 Audit Report14 February 2012
Introduction The purpose of this presentation is to provide a progress report on how the department is addressing the issues that resulted in a disclaimer audit opinion for the financial year ending 2010/11.
Introductory Remarks ACCOUNTING OFFICER’S INTRODUCTORY REMARKS: • We have noted with great concern the Auditor General’s audit opinions on our Annual Financial Statements for the year ended 31 March 2011, which are a disclaimer for National Department of Public Works and another disclaimerfor the Property Management Trading Entity (PMTE) of the Department. • While the disclaimer opinion suggests that there is deterioration in the department’s internal controls, we wish to assure this Committee that we have taken these matters seriously as demonstrated by the task teams that have been set to review the organizational design of the department as well as the assessments of competency and skills levels at management levels. • The incidents highlighted by the Office of the Auditor General, as the basis for the disclaimer reports were in respect of new challenges and previous matters that that the Department was still in progress of addressing, but could not be finalised at the conclusion of this audit. • The major contributing delays in our plans were more attributed to changes that happened in the Department during the financial year, which relate to the following factors: • The unavoidable changes in the leadership during the year, impacting on decision making and implementation of certain plans that were in progress.
Introductory Remarks cont. • Loss of key personnel at Top Management level e.g certain positions at DDG levels that were crucial to carry and implement certain plans. • Unanticipated limitation of scope which resulted from documents held for fraud investigation purposes • Accounting disclosure notes which in some instances did not have supporting schedules or submitted late to the auditors. • As part of improving the internal controls, we are currently reviewing the business processes and operational policies to meet the new requirements and challenges the Department is facing. • The Minister has commenced with a turnaround strategy which is aimed at stabilizing the department and reviewing the organizational design to enable improved service delivery. • We would like to assure the Committee that progress in addressing these challenges will be communicated, but some of these matters might need more than one financial year to be completely addressed, due to the complexity of the matters and limited financial and human resources in the Department.
Background • The department received a disclaimer audit opinion based on the following: • Immovable Assets • Irregular Expenditure • Other expenditure • Lease commitments (Excluding Property) • Contingent liabilities • Private Public Partnership Resolved for correct disclosure at the end of the 2012 financial year.
Emphasis of Matter • Material under-spending of the vote and conditional grants • Infrastructure Capital Budget under spending • Although the department had put in place close monitoring of project performance to manage under-spending, quarter 3 financial performance shows that the improvements achieved have not yet met the desired results. • It is envisaged that the turnaround strategy which is currently in progress will unblock some of the competency and capacity challenges affecting proper planning and project management. • EPWP under spending • The department has strengthen the support to Municipalities & Provinces to enable proper reporting of work opportunities created. Significant improvement has already been noted on the reporting by Provinces. • The department is also in the process of procuring service providers to assist Municipalities with the creation of labour intensive projects. The proposed new EPWP model will assist with the spending of the incentive grant.
Emphasis of Matter cont. • Restatement of corresponding figures The finance team have already commenced with the quality control of the Financial Statements of the Interim and 3RD Quarter reporting. The finance team from Head Office has visited six Regions to inspect the reconciliations and also validate information submitted to Head Office for compilation of Financial Statements. The results were quite shocking and also proved that some finance managers in the Regions lacked financial management skills. Support systems will be put in place to assist the Regions with financial accounting capacity. • Material losses The amounts written off were as result of detailed reconciliations which proved that it was impractical to institute further investigations due the time period of the transactions and the unavailability of source documents.
In Conclusion • While extensive efforts are being undertaken to improve the financial management of the department, enforcing compliance and improving monitoring remains a challenge due to capacity constraints. • We are still experiencing huge numbers of deviations from Procurement processes as well as poor reporting by Regions. • The lack of proper Information Systems compounds the problem of poor monitoring and evaluation of trends. • It envisaged that the turnaround strategy which is currently in progress will to a large extent address the deficiencies within our people, systems and processes.
Presentation of the Management Action Plan on the 2010/11 Audit Report for the Property Management Trading Entity (PMTE)
Basis of Disclaimer • The entity received a disclaimer audit opinion based on the following: • Irregular Expenditure • Fruitless and Wasteful Expenditure • Compliance with GAAP • Bank overdraft • Other commitments • Operating Leases
Bank Overdraft • The department reported an overdraft of R1,6 billion at the end of the financial year. • As at the end of December the overdraft had increased to R2,1 billion, with 40% of the amounts being older than one year. • The continuous engagements with clients have assisted in resolving almost 49% of the old outstanding balances. • We are optimistic that with the current stabilization of the department championed by the Minister and the leadership of the department , an improved business model for the PMTE will be achieved and operationalized. • At this stage the bank overdraft of the PMTE still poses a challenge on the going concern of the entity.
In Conclusion • I would like to submit that the implementation of the PMTE was never thought through thoroughly in terms of systems, people and processes. • The problems were compounded by the instability of leadership in the department as evidenced by the business case which is still not yet approved officially by the department. • We are in the process of appointing an accounting firm that will assists the CFO with the GAAP compliance issues. This will be an interim measure while the department is implementing the turnaround strategy. • We are currently fast tracking the acquisition an accounting system to enable proper accounting and reporting for the entity. • One of the key features of the turnaround strategy will be the appointment of a Head of Finance for the Entity to enable proper financial accounting and reporting. • There is certainly a concerted effort by the management team to work towards the stabilization of the department.
